If it was necessary to sell or transfer assets (including a business) of an insolvent corporate borrower what, if any, are the major difficulties or problems associated with that process (for example restrictions on transfer or sale of land; providing for the transfer or welfare of employees on a sale or transfer of a going concern business)?

There are a number of difficulties and problems in transferring the assets, including the business, of an insolvent Indonesian corporation. First, we should address a definitional problem. As discussed above, a company is first considered in Indonesia as bankrupt and then when a determination has been made that it cannot pay its debts, it is found to be insolvent. We assume that the term “insolvent” as used in the question above means the corporate is unable to pay its debt when due but has not yet been adjudicated to be bankrupt.

The following are the major problems in transferring the assets of an insolvent business:

1. If the assets of an Indonesian company were imported with duty free import privileges, as permitted to foreign investment law companies and domestic investment law companies, then the duty must be paid on a transfer of such assets (if the company has been in operation less than 2 years) or the buyer itself must have duty free privileges under the Foreign Investment Law or the Domestic Investment Law. If the buyer has duty free privileges, the transfer is subject to the approval of the Indonesian Capital Investment Board (“BKPM”). While this is routinely given, the process can be time-consuming.

2. There is also a restriction on the transfer and sale of land to foreigners. Foreign ownership of land is restricted in Indonesia. At present foreign individuals or companies resident in Indonesia can only purchase a type of title known as “Hak Pakai”, which is the right to use property. (Please see Section C1 above, concerning property titles.) Most Indonesian companies will have a Hak Guna Bangunan or HGB title. If such title is transferred to foreigners, the title must be “downgraded” to a Hak Pakai title.

3. If a company is going to cease doing business and/or transfer its employees to another entity, or otherwise make them redundant, a mass termination will occur under the Indonesian labor law. This requires the approval of the Indonesian Department of Manpower prior to such termination or transfer. The affected employees can request termination rather than transfer. In that case, they must be paid their accrued severance and other benefits.